Outside editorial: GM a newer, more expensive American Motors

Posted: Wednesday, June 03, 2009

Maybe the best name for the new General Motors is American Motors.

We're not suggesting that the reorganized GM make Gremlins. We are suggesting that the new GM is a government ward that belongs to all of us. And that President Barack Obama must do more to explain how his administration intends to make that ownership short-lived while avoiding the gremlins that hover over a company 60 percent owned by the federal government and 12.5 percent by the Canadians.

GM needed to file for bankruptcy for a simple reason: It's bankrupt. Problem is, it should have filed in December.

GM has been a financial zombie for months. But instead of recognizing the obvious and forcing GM into federal court, President George W. Bush, with Obama's support, began the process that gave GM $20 billion in low-interest loans. A harder line then could have saved taxpayers money and the company time.

Protection from creditors is the only way to quickly relieve GM of its suffocating debt and to rewrite contracts with its dealers and union. GM's situation is different from major banks, whose collapse would have threatened the entire financial system. The failure of GM, though monumental, should be sorted out in court.

Now another $30 billion is on the line - none of this is likely to be repaid, by the way - and there are even more bumps in the road.

The administration is pushing companies to build more fuel-efficient cars - a good idea. But smaller, fuel-efficient cars have never sold well except when gas prices spike. What happens when the government's goal of fuel efficiency collides with its goal of helping GM make a profit?

Conflicts will emerge over jobs. The company may need to shutter U.S. plants and move some work overseas to remain competitive. We don't like that prospect, but it might have to be done. Will Congress avoid playing politics?

How can companies that didn't get a government handout - say Ford Motor Co. - be sure that the government will play fair and eschew favoritism to its foster child?

And, of course, there's this: With GM's recent track record, what makes anyone believe that the company can build reliable, fuel-efficient cars that people want to buy? What if the new slimmer GM still can't make it? How much federal aid is too much? In our view, we long ago reached the limit.

Obama needs a clear exit strategy that gets the government out of GM as soon as possible, which could be years. And the president should explain in specific terms how he will ensure that a company majority-owned by the federal government can function in a free market. He gave assurances on Monday, but assurances are not a strategy.

The risk is that this version of American Motors will suffer the same fate as the last one. But the cost to the public will be far greater.